659 F.2d 285 (2nd Cir. 1981), 1304, Payroll Exp. Corp. v. Aetna Cas. and Sur. Co.
|Docket Nº:||1304, Docket No. 81-7100.|
|Citation:||659 F.2d 285|
|Party Name:||PAYROLL EXPRESS CORPORATION, Plaintiff-Appellant, Cross-Appellee, v. The AETNA CASUALTY AND SURETY COMPANY, Defendant-Appellee, Cross-Appellant.|
|Case Date:||September 09, 1981|
|Court:||United States Courts of Appeals, Court of Appeals for the Second Circuit|
Argued May 28, 1981.
Robert F. Fink, New York City (George L. Graff, Milgrim Thomajan Jacobs & Lee, P. C., New York City, of counsel), for plaintiff-appellant, cross-appellee.
Kenneth W. Malamy, New York City (Jerome Murray, Hendler & Murray, New York City, of counsel), for defendant-appellee, cross-appellant.
Before FEINBERG, Chief Judge, and LUMBARD and MANSFIELD, Circuit Judges.
MANSFIELD, Circuit Judge:
In this diversity action for breach of an insurance contract Payroll Express Corporation (Payroll), a company which makes payroll deliveries for employers, appeals from a judgment of the Southern District of New York, Pierre N. Leval, Judge, entered after a non-jury trial, holding that a policy issued to it by the defendant, The Aetna Casualty and Surety Company (Aetna), insuring it against dishonesty, destruction and disappearance of payrolls (known as "crime" insurance) is not cancellable except for non-payment of premiums until February 7, 1983, and enjoining Aetna from cancelling before August 7, 1981. The defendant cross appeals, claiming that the policy was at all times cancellable. We reverse that part of the decision holding the policy cancellable after February 7, 1983, and direct that the judgment be modified to enjoin Aetna permanently from terminating except for non-payment of premiums
due. In all other aspects the decision is affirmed.
Since the facts are fully and thoroughly set forth by Judge Leval in his decision, 504 F.Supp. 383, and his findings are supported by the record, we will limit ourselves to a summary of the highlights. Payroll is in the business of cashing on location payroll checks or vouchers of employees of companies that hire it. Those companies wire the necessary funds to Payroll's account and Payroll then pays the employees cash. As part of its contracts with these businesses Payroll must have insurance against the loss of their payrolls due to crime. Since February, 1972, that insurance has been provided by Aetna. The first paragraph of § 16 of Aetna's printed policy provides in pertinent part that "This Policy or any Insuring Agreement may be cancelled by the Company by mailing to the Insured at the address shown in this Policy written notice stating when not less than fifteen days thereafter such cancellation shall be effective."
From the beginning of its relationship with Aetna Payroll has sought to obtain non-cancellable insurance, because its ability to market its services would be enhanced if it could point to such insurance and because it feared that the consequence of an untimely cancellation of its insurance could be the failure of the company. In response to Payroll's requests Aetna in 1972 issued an ambiguous letter which agreed to provide coverage for one year from the effective date of the policy but also permitted Aetna on 30 days' notice to elect not to continue coverage and provided that if Payroll failed to pay premiums Aetna could cancel under § 16.
Payroll continued to seek non-cancellable insurance. Robert Felzenberg, its President, pressed Aetna for permanent non-cancellable insurance under which Aetna would periodically adjust the amount of the premiums to be paid. Aetna eventually responded by issuing a letter endorsement to its renewal of the policy, effective February 7, 1983, that provided coverage for three years, i. e., until February 7, 1976, and permitted Aetna to cancel under § 16 for non-payment of premiums. In 1974, on the anniversary of this policy, a new special endorsement was issued, similarly guaranteeing coverage for three years, until February 7, 1977. Aetna also set fixed guidelines for changing premiums over the three years. A similar three-year guarantee was issued in 1975, extending coverage to February 7, 1978. Again, fixed limits for the premium charges were set.
Felzenberg was still unsatisfied with the limited-duration guarantee of Payroll's coverage. At the end of 1975 he renewed his request for a permanently non-cancellable policy, with Aetna setting the premium for each year three years in advance. He and Richard LaHue, the Aetna officer in charge of the Payroll contract, held a meeting on the subject, attended by other Aetna personnel, at which they agreed to change the terms of the policy. Felzenberg testified that LaHue agreed to make the policy non-cancellable. LaHue testified that he refused to do so, but was unclear as to exactly what the agreed-upon change was. Shortly after the meeting Aetna issued a letter stating the terms of the agreement, and LaHue approved it before it was sent to Payroll. The letter was prepared by LaHue's staff in response to his instruction to "design for approval" a "Letter to Insured re non/can (non-cancellation) and premium level." It provided:
"February 7, 1976
Robert M. Felzenberg, President
Payroll Express Corp.
295 Lyons Avenue
Newark, New Jersey 07112
Dear Mr. Felzenberg:
Payroll Express Corp.
Policy No. 10 BY 1580 BCA
Please be advised the following conditions are to apply to the above captioned policy.
1) The Aetna Casualty & Surety Company agrees that the first paragraph section No. 16 of the policy, dealing with the cancellation of policy or insuring agreement, is deleted in its entirety. The only exception to this will be failure
on the part of the insured to pay the required premium, in which case, the company will have the options of cancellation under section No. 16 of the policy.
2) The Aetna Casualty & Surety Company further agrees that they will not decrease the limits of coverage on the above-captioned policy unless requested to do so by the insured.
3A) The premium charge for the above-captioned policy is for the period February 7, 1976 to February 7, 1979, and is agreed to be $55,365. per year.
B) This premium shall not be changed unless there is a merger or consolidation with some other concern or unless the insured purchases additional limits or coverages.
4) The Aetna Casualty & Surety Company further agrees that, upon expiration of each of the policies' premium anniversary years, a new third year premium will be developed and will become a guaranteed cost, subject to 3B above.
Very truly yours,
The Aetna Casualty and Surety Company
/s/ Frank S. Maranto, Jr.
Frank S. Maranto, Jr.
Aetna simultaneously issued a new policy combining the two previous policies covering Payroll, which was made effective February 7, 1976. On February 7, 1977, Aetna issued another letter (the "1977 letter") signed by John Schramm, office bond manager at Aetna's Albany, New York, office, pursuant to LaHue's instructions and with his approval, which was identical to the 1976 letter except that the dates were advanced by a year and the premium was higher. 1
During 1977 Payroll experienced a number of armed robberies and made claims on the policy. Aetna, concerned about its loss exposure and the elimination of its right to cancel except for non-payment of premiums, sent Payroll a new special endorsement substantially decreasing the limits of coverage under the policy, which Payroll refused to accept on the ground that it was protected against decreases in coverage by the 1976 and 1977 letters. By early...
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